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New gum arabic strategy to nurture buffer stocks for price stability

17-Jun-2005

Buffer stocks are the cornerstone of a new strategy unveiled to stabilise price and sustain permanent supplies for gum arabic in the world's top three producing countries, writes Lindsey Partos.

Last week in Khartoum, Sudan, stakeholders in the world gum arabic business met with the FAO and the World Bank to map out key steps to build up stockpiles in the primary producing countries of Sudan, Chad and Nigeria.

 

Obtained from Acacia trees in the gum belt of Africa, the top producers bring about 50,000 tonnes of gum arabic to the market each year.

 

But political and climatic factors in these primary producing countries have led to spikes in the price of the ingredient, known as the 'Rolls Royce' of gums.

 

Gum arabic, also known as acacia gum (E414 in the EU), is widely used by the food and beverage industry; particularly in confectionery categories, where it is included to delay or prevent sugar crystallisation and to emulsify fat.

 

But a reduced gum acacia crop in 2002/03 in all the producing countries pushed up prices for the gum during 2003, increasing rapidly by 25 per cent to 30 per cent between March and May in 2003, quickly exhausting stocks in Nigeria, and then in Chad.

 

But since Spring 2004 prices have remained fairly stable, seeing only slight fluctuations, and are currently in the region of $4,000 a tonne. But this is still considerably higher than its 'natural' price, of about $2000 to $2500 a tonne.

 

Beholden to the state of supplies in Africa, the global gum business is optimistic that by building stock piles with about a year's worth of supplies (about 50,000 tonnes), sustainability and permanent availability will offer protection to price vulnerability.

 

Key to the declaration in Khartoum last week is the view that growers should be encouraged to sustain and increase the supply of gum arabic.

 

But intimately linked to this ambition is price. Local producers, manning the acacia trees that only produce one kilo of gum a piece, need to receive a fair price for their product.

 

Only a decent price will encourage the producers to maintain the trees from one year to the next.

 

"Acacia trees produce gum for about 10 years in their 15 year long life, which means crops have to be constantly rotated," says Hinrich Wolff, president of the AIPG (Association for the International Promotion of Gums), and senior general manager at German gum firm Alfred L Wolff.

 

The AIPG, whose members represent about 80 per cent of the global gum business and include CNI and Kerry Ingredients, was the engine behind the meeting in Khartoum last week that led to a five point declaration posting the way forward for buffer stocks.

 

National delegations from Sudan, Chad and Nigeria sat down at the table with the AIPG, the UN backed Food and Agriculture Organisation (FAO) and the World Bank "to try to organise buffer stocks and strategies to safeguard jobs," says Wolff.

 

Crucially, the national delegations agreed to investigate how to set up new infrastructures, different in each country, to create the buffer zones.

 

Financing will pay a key role in taking the strategies forward, which explains the presence of the World Bank at the meeting and their potential future role.

 

Gum arabic stocks, for which a firm price is agreed, can keep people interested in maintaining the tree crops, Wolff explains to FoodNavigator.com.

 

With a receipt in hand that demonstrates a certain quantity of stocks, producers can go to the bank for finance to carry them to future stocks.

 

"In my opinion, the difference between the price paid to the farmer and the global market price is more than enough to pay for interest rates, and other costs," adds the AIPG president.

 

Wolff believes negotiations with the world bank could be easier if local governments show their support for the strategy, by initially financing the buffer stock set-up. "Perhaps they should finance the first 1000 tonnes," he says.

 

The delegations will gather at a follow-up meeting in three months with the results of their discussions. Woolf hopes that by 1 October, "we will establish the buffer zone with financing."

 

Sudan, the largest exporter, produces 25, 000 tonnes of acacia gum annually followed by Chad 10,000 then Nigeria whose production fluctuates between 3,000 to 5,000 tonnes.